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Exam 18: Rewards, Incentives and Risk Management

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Question 21

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Compensation contracts prepared to deal with the agency problem can be based on accounting and/or non-accounting measurements.

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Question 22

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To reduce agency costs, organisations implement various systems and controls to monitor behaviour, including: I $\text {Publishing audited firaricial staternents}$ II $\text {Filing income tax retums}$ III $\text {Tying financial rewards to reported results}$

A) I and II only
B) II and III only
C) I and III only
D) I, II, and III

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Question 23

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Relative performance evaluation (RPE), in relation to incentive systems, is about the comparison of company performance, using suitable measures, against the performance of a peer group.

Regulation in Australia with respect to reward systems for senior executives is:

An organisation's chief executive officer can be both a principal and an agent.

Reward systems at top management level are most commonly fixed payment packages.

Which of these is correct concerning agency theory? Normally the:

Compensation contracts that provide incentives for agents to increase organisational value might include: I $\text {Cash-based boruses}$ II $\text {Share options}$ III $\text {Cash bonuses based on share price increases or targets}$

Agency theory is an analytical framework that tells managers how to solve potential conflicts with shareholders.

Which of these is not one of the four categories contained in the CoCo (criteria of control) guidance on control integrated framework?

It is common in accounting to define a 'long-term' view as:

Agency theory is related to accounting because organisations incur costs, including the costs to produce accounting information, to solve conflicts that might arise between managers and owners.

Which of these is an advantage of rewarding senior executives with cash rather than with non-cash payments?

Agency theory recognises two kinds of information consumers. Which of the following describes the relationship between them?

A manager under-investing in projects that are in shareholder's best interests but which may reduce the manager's own bonus payment, is classed as which type of agency cost?

Research has found that in Australia in the last 10 years CEO's salaries have increased at 10 times the rate of shareholder's returns.

Managers can reduce agency costs through the use of compensation contracts.

It is not possible to overcome the problem of remuneration bonuses having an upside bias.

The correct statement concerning intrinsic and extrinsic rewards is:

When executive pay is linked closely to the firm's performance it is not possible for executives' pay to increase when the company's share price is falling.